Indian Consumer Market

June, 2014

Introduction

India has been a consumption-driven economy for the last many decades. Consumer spending in the country is expected to increase about 2.5 times by 2025. Broadly categorised into urban and rural markets, the Indian consumer segment is gaining high attention and pampering from marketers across the globe.

Global corporations view India as one of the key markets from where future growth will emerge. The growth in India’s consumer market will be primarily driven by a favourable population composition and rising disposable incomes. A recent study by the McKinsey Global Institute (MGI) suggests that if India continues to grow at the current pace, average household incomes will triple over the next two decades and the country will become the world’s fifth largest consumer economy by 2025, up from 12th at present.

The Government of India plays a catalytic role in the growth of Indian consumer segments and their welfare. It has eased key rules on foreign direct investment (FDI) in an attempt to attract foreign firms to boost economic growth. As people are demonstrating an increasing interest in online shopping, future prospects pose a tremendous growth opportunity for retail and FMCG players alike.

Market Size

India is likely to emerge as the world’s largest middle class consumer market with an aggregated consumer spend of nearly US$ 13 trillion by 2030, as per a report by Deloitte titled 'India matters: Winning in growth markets'.

Fuelled by rising incomes and growing affordability, the consumer durables market is expected to expand at a compound annual growth rate (CAGR) of 14.8 per cent to US$ 12.5 billion in FY 2015 from US$ 7.3 billion in FY 2012. Urban markets account for the major share (65 per cent) of total revenues in the Indian consumer durables sector. In rural markets, durables, such as refrigerators, and consumer electronic goods are likely to witness growing demand in the coming years. From US$ 2.1 billion in FY 2010, the rural market is expected to grow at a CAGR of 25 per cent to touch US$ 6.4 billion in FY 2015.

The growth of internet retail is going to complement the growth of offline retail stores. Online retailing, both direct and through marketplaces such as eBay, will triple to become a Rs 50,000 crore (US$ 8.34 billion) industry by 2016, growing at a whopping 50–55 per cent per year over the next three years, according to rating agency Crisil.

With growing consumerism and disposable income, India's used goods market is likely to touch Rs 115,000 crore (US$ 19.18 billion) by 2015 from Rs 80,000 crore (US$ 13.34 billion) at present, according to a study by an industrial body. Whether consumer goods like electronics, durables, automobiles, etc., or industrial machinery in the capital goods sector, the options of reusage are being considered more actively than ever before.

Investments

The following are some of the major investments and developments in the Indian consumer markets sector:

Samsung has launched curved televisions in the Indian market priced between Rs 100,000–449,000 (US$ 1,667.63–7,487.65) to tap high-end buyers. Under its curved range, the company is offering a range of 10 television models with ultra-high definition (UHD) and LED technologies. “This technology should get adopted, we feel very strong. It’s a global trend. People are now looking at much and much better picture quality and immersive nature of the TV, which we do not have till now,” said Mr R Zutshi, Deputy Managing Director, Samsung India.

Kerala-based Paragon, which helped popularise branded rubber chappals in India, is now actively looking at new growth drivers. The Rs 1,400 crore (US$ 233.38 million) footwear maker is diversifying into trendier products such as sports shoes and non-leather formal footwear, before finally stepping into the larger leather footwear market.

Canon India plans to get into the network security camera market. “We have made forays into photo albums, cinematography and medical imaging. Sometime later this year, we will launch our first product in the Indian security camera market,” said Mr Alok Bharadwaj, Executive Vice-President, Canon India.

Amul has clocked its highest ever growth in FY 2014, riding on a sharp rise in exports and entry to new markets. “We have achieved 32 per cent growth in our annual turnover which is the highest ever growth since it was set up in 1973. For nearly five years straight, we had achieved 20 per cent growth in our turnover," as per Mr R S Sodhi, Managing Director, Gujarat Co-operative Milk Marketing Federation Ltd (GCMMF).

Amway India plans to increase its proposed investment in its Tamil Nadu facility, with more production lines to manufacture its complete range of nutrition and beauty products. The company will invest Rs 150 crore (US$ 25 million) over and above the originally proposed Rs 400 crore (US$ 66.67 million) in the manufacturing facility that is coming up at Nilakottai near Madurai. It is expected to start commercial production by the end of 2014, according to Mr Anshu Budhraja, Chief Operating Officer, Amway India.

UK-based Reckitt Benckiser, the household goods manufacturer that sells Dettol antiseptic and Harpic toilet cleaners in India, among other brands, has set a target to reach over 200 million people by 2020 to improve their health and hygiene behaviour.

Government Initiatives

The Government of India has allowed 100 per cent FDI in the electronics hardware-manufacturing sector under the automatic route. It has also allowed 51 per cent FDI in Multi-Brand Retail Trading (MBRT) and 100 per cent in Single-Brand Retail Trading (SBRT) in order to bring more foreign investment into the country.

Hyderabad will soon have a Rs 100 crore (US$ 16.68 million) National Institute for Footwear Design and Development. The Andhra Pradesh government has apportioned the required land at Gachibowli in Cyberabad. Funds for the national centre have already been approved by the Commerce Ministry.

Road Ahead

India is poised to become a substantial market for wearable technology such as smart watches and fitness monitors, driven by keen consumer interests in these latest gadgets and increasing spending on consumer durables. Respondents from India were most interested in buying fitness monitors (80 per cent), smart watches (76 per cent) and internet-enabled eyeglasses (74 per cent), according to Accenture's Digital Consumer Tech Survey 2014.

Nielsen estimates that rural India’s FMCG market will touch US$ 100 billion by 2025. Online portals are expected to play a vital role for companies trying to access these markets. The Internet allows for a cost-effective means to increase a company’s reach by overcoming geographic barriers. Today, with rural India empowered with computers and smartphones, the Internet is slowly gaining a foothold.

All material, information, data, images or content on this website is subject to copyright or other applicable intellectual property laws and no part of it can be reproduced in any form (including paper or electronic form) without prior written consent and approval from IBEF. Infringements are subject to prosecution under the applicable laws. For consent related queries and conditions, please write to info.brandindia@ibef.org